Skip to main content

Advertisement

SpringerLink
Log in

Persistent high-growth firms in China’s manufacturing

  • Published:
Small Business Economics Aims and scope Submit manuscript

Abstract

This article explores the association between persistence of high-growth and crucial dimensions of firm structure and performance (productivity, profits, investment patterns, innovation, and financial structures) to shed light on what makes a persistent high-growth firm. We employ a multidimensional definition of a high-growth firm that simultaneously accounts for growth of sales and employment, and design an empirical strategy that seeks to capture the “long-run” ability of high-growth firms to replicate their high-growth performance over time. Exploiting a large panel covering the period of the China’s miracle, we find that none of the considered firm attributes stands out as distinctive feature of persistent high-growth. This finding casts doubts on the long-run contribution of high-growth firms, in turn challenging the long-run effectiveness of policies supporting the creation and expansion of such firms.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others

Notes

  1. In 2003, the classification system was revised: some sectors were further disaggregated, while others were merged together, but consistency over time is ensured by adopting the harmonized classification proposed in Brandt et al. (2012).

  2. Essentially, we just dropped few firms with negative values in output, sales, value added, fixed assets, and cost of labor.

  3. We discard the first year, 1998, in order to have periods of the same length. The normalization implicitly removes sector-specific common trends, such as inflation and business cycle effects in sectoral demand.

  4. Another alternative sometimes suggested in the literature on persistence of economic performance (e.g., in innovation studies) would have been to define HG status on a yearly basis, and then employ duration analysis to elicit the influence of focal firm characteristics on the length of the spells of HG growth status, over 1, 2, and more years. However, as expected given the well-known erratic nature of growth processes, we verified that in our data about 95% of all yearly HG events do not last more than 3 years, and actually 65% of them last just 1 year. We thank an anonymous referee for suggesting to clarify this point.

  5. Gross margins are essentially equivalent to an EBIDTA index, taking the difference between value added and cost of labor (total wages plus social security).

  6. “New products” are defined, according to NBS, as products adopting new technology and/or new design, or products that have been significantly improved over existing ones with respect to their structure, materials and/ or process techniques. Hence, comparing with international standards in innovation surveys as defined by the Oslo manual, “new products” in our data are new to the enterprise, but not necessarily new to the market.

  7. According to Chinese accounting rule, interest expenses is a net measure, which equals gross interest expenses minus interest revenues, and can thus take negative values.

  8. There are five types of registration capital in the NBS data: state, collective, legal person, individual, Hong-Kong Macao and Taiwan, and foreign. “State-control” indicates both State-absolute-control, i.e., the State capital share is greater than or equal to 50%, and State-relative-control, i.e., State capital share is less than 50% but it is greater than the other shareholders or the relative State-controlling status is regulated by the contract.

  9. Notice that export status changes more often than ownership and this is the reason why we define the two dummies in two different ways.

  10. More precisely, the East region includes Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. The Middle region includes Shanxi, Anhui, Jiangxi, Henan, Hubei, and Hunan. The West region includes Inner Mongolia, Guangxi, Chongqiong, Sichuan, Guizhou, Yunnan, Tibet, Shannxi, Gansu, Qinghai, Ningxia, and Xinjiang. The Northeast region includes Liaoning, Jilin, and Heilongjiang.

  11. The data cannot be matched with other data sources, due to confidentiality and restricted access, so we cannot exploit other sources of information to include further region-specific or sector-specific characteristics.

  12. This is confirmed by looking at kernel densities of all variables, for both HG and other firms. Results are not reported, but available upon request.

  13. Notice that, given the data span 10 years, young firms include only firms entering the sample exactly during the years covered in the data.

  14. This size categorization method was adopted by the Chinese State Economic and Trade Commission in 2011.

References

  • Acs, Z., & Mueller, P. (2008). Employment effects of business dynamics: mice, gazelles and elephants. Small Business Economics, 30(1), 85–100.

    Article  Google Scholar 

  • Acs, Z., Parsons, J., & Tracy, W. (2011). High-impact firms: gazelles revisited. In Fritsch, M. (Ed.) Handbook of research on entrepreneurship and regional development: National and regional perspectives (pp. 133–174). Cheltenham: Edward Elgar Publishing.

  • Audretsch, D.B., Coad, A., & Segarra, A. (2014). Firm growth and innovation. Small business economics, 43(4), 743–749.

    Article  Google Scholar 

  • Barney, J.B. (1997). On flipping coins and making technology choices: luck as an explanation of technological foresight and oversight. In Garud, R., Nayyar, P.R., & Shapira, Z.B. (Eds.) Technological innovation: oversights and foresights. Cambridge: Cambridge University Press.

  • Baumol, W.J. (1990). Entrepreneurship: productive, unproductive, and destructive. Journal of Political Economy, 98(5, Part 1), 893–921.

    Article  Google Scholar 

  • Baumol, W.J. (2010). The microtheory of innovative entrepreneurship. No. 9216 in economics books. Princeton: Princeton University Press.

    Google Scholar 

  • Beck, T., Demirgüċ-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: does firm size matter? The Journal of Finance, 60(1), 137–177.

    Article  Google Scholar 

  • Bellak, C. (2004). How domestic and foreign firms differ and why does it matter? Journal of Economic Surveys, 18(4), 483–514.

    Article  Google Scholar 

  • Bianchini, S., Pellegrino, G., & Tamagni, F. (2016). Innovation strategies and firm growth. LEM Working Papers 2016/03, Laboratory of Economics and Management (LEM) Sant’Anna School of Advanced Studies, Pisa, Italy. Forthcoming in Industrial and Corporate Change.

  • Bianchini, S., Bottazzi, G., & Tamagni, F. (2017). What does (not) characterize persistent corporate high-growth? Small Business Economics, 48(3), 633–656.

    Article  Google Scholar 

  • Birch, D.L. (1981). Who creates jobs. The Public Interest, 65, 3–14.

    Google Scholar 

  • Birch, D.L., & Medoff, J. (1994). Gazelles. In Lewis, C.S., & Alec, R.L. (Eds.) Labor markets, employment policy and job creation (pp. 159–167). Boulder: Westview Press.

  • Bottazzi, G., Dosi, G., & Rocchetti, G. (2001). Modes of knowledge accumulation, entry regimes and patterns of industrial evolution. Industrial and Corporate Change, 10(3), 609–38.

    Article  Google Scholar 

  • Bottazzi, G., Secchi, A., & Tamagni, F. (2014). Financial constraints and firm dynamics. Small Business Economics, 42(1), 99–116.

    Article  Google Scholar 

  • Brandt, L., Van Biesebroeck, J., & Zhang, Y. (2012). Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing. Journal of Development Economic, 97(2), 339–351.

    Article  Google Scholar 

  • Capasso, M., Cefis, E., & Frenken, K. (2014). On the existence of persistently outperforming firms. Industrial and Corporate Change, 23(4), 997–1036.

    Article  Google Scholar 

  • Chang, W., & MacMillan, I.C. (1991). A review of entrepreneurial development in the People’s Republic of China. Journal of Business Venturing, 6(6), 375–379.

    Article  Google Scholar 

  • Clementi, G.L., & Hopenhayn, H.A. (2006). A theory of financing constraints and firm dynamics. The Quarterly Journal of Economics, 121(1), 229–265.

    Google Scholar 

  • Coad, A. (2007). A closer look at serial growth rate correlation. Review of Industrial Organization, 31(1), 69–82.

    Article  Google Scholar 

  • Coad, A., & Hölzl, W. (2009). On the autocorrelation of growth rates. Journal of Industry, Competition and Trade, 9(2), 139–166.

    Article  Google Scholar 

  • Coad, A., & Hölzl, W. (2012). Firm growth: Empirical analysis. In Handbook on the economics and theory of the firm. Cheltenham: Edward Elgar Publishing Inc.

  • Coad, A., & Rao, R. (2008). Innovation and firm growth in high-tech sectors: a quantile regression approach. Research policy, 37(4), 633–648.

    Article  Google Scholar 

  • Coad, A., Rao, R., & Tamagni, F. (2011). Growth processes of Italian manufacturing firms. Structural Change and Economic Dynamics, 22(1), 54–70.

    Article  Google Scholar 

  • Coad, A., Daunfeldt, S.O., Hölzl, W., Johansson, D., & Nightingale, P. (2014). High-growth firms: introduction to the special section. Industrial and Corporate Change, 23(1), 91–112.

    Article  Google Scholar 

  • Coad, A., Segarra, A., & Teruel, M. (2016). Innovation and firm growth: does firm age play a role? Research Policy, 45(2), 387–400.

    Article  Google Scholar 

  • Covin, J.G., Green, K.M., & Slevin, D.P. (2006). Strategic process effects on the entrepreneurial orientation–sales growth rate relationship. Entrepreneurship theory and practice, 30(1), 57–81.

    Article  Google Scholar 

  • Daunfeldt, S.O., & Halvarsson, D. (2015). Are high-growth firms one-hit wonders? Evidence from Sweden. Small Business Economics, 44(2), 361–383.

    Article  Google Scholar 

  • Daunfeldt, S.O., Elert, N., & Johansson, D. (2010). The economic contribution of high-growth firms: do definitions matter? Stockholm: The Ratio Institute.

    Google Scholar 

  • Daunfeldt, S.O., Elert, N., & Johansson, D. (2014). The economic contribution of high-growth firms: do policy implications depend on the choice of growth indicator? Journal of Industry, Competition and Trade, 14(3), 337–365.

    Article  Google Scholar 

  • Davidsson, P., & Henrekson, M. (2002). Determinants of the prevalence of start-ups and high-growth firms. Small Business Economics, 19(2), 81–104.

    Article  Google Scholar 

  • Decker, R.A., Haltiwanger, J., Jarmin, R.S., & Miranda, J. (2016). Where has all the skewness gone? The decline in high-growth (young) firms in the U.S. European Economic Review, 86, 4–23.

    Article  Google Scholar 

  • Delmar, F., Davidsson, P., & Gartner, W.B. (2003). Arriving at the high-growth firm. Journal of Business Venturing, 18(2), 189–216.

    Article  Google Scholar 

  • Dosi, G., Marsili, O., Orsenigo, L., & Salvatore, R. (1995). Learning, market selection and evolution of industrial structures. Small Business Economics, 7(6), 411–36.

    Article  Google Scholar 

  • Dosi, G., Nelson, R., & Winter, S. (2001). The nature and dynamics of organizational capabilities. Oxford: OUP.

    Book  Google Scholar 

  • Dosi, G. (2007). Statistical Regularities in the Evolution of Industries. A Guide through some Evidence and Challenges for the Theory. In Malerba, F., & Brusoni, S. (Eds.) Perspectives on Innovation. Cambridge: Cambridge University Press, pp. 155–186.

  • Du, J., & Temouri, Y. (2015). High-growth firms and productivity: evidence from the United Kingdom. Small Business Economics, 44(1), 123–143.

    Article  Google Scholar 

  • Ericson, R., & Pakes, A. (1995). Markov-perfect industry dynamics: a framework for empirical work. Review of Economic Studies, 62(1), 53–82.

    Article  Google Scholar 

  • Fligner, M.A., & Policello, G.E. (1981). Robust rank procedures for the Behrens-Fisher problem. Journal of the American Statistical Association, 76(373), 162–168.

    Article  Google Scholar 

  • Fu, X., & Gong, Y. (2011). Indigenous and foreign innovation efforts and drivers of technological upgrading: evidence from China. World Development, 39(7), 1213–1225.

    Article  Google Scholar 

  • Garsaa, A., & Levratto, N. (2015). Do labor tax rebates facilitate firm growth? An empirical study on French establishments in the manufacturing industry, 2004–2011. Small Business Economics, 45(3), 613–641.

    Article  Google Scholar 

  • Goedhuys, M., & Sleuwaegen, L. (2010). High-growth entrepreneurial firms in africa: a quantile regression approach. Small Business Economics, 34(1), 31–51.

    Article  Google Scholar 

  • Grazzi, M., & Moschella, D. (2017). Small, young, and exporters: new evidence on the determinants of firm growth. Journal of Evolutionary Economics. https://doi.org/10.1007/s00191-017-0523-7.

  • Guarascio, D., & Tamagni, F. (2016). Persistence of innovation and patterns of firm growth. LEM Working Papers 2016/31 Sant’Anna School of Advanced Studies, Pisa, Italy.

  • Guariglia, A., Liu, X., & Song, L. (2011). Internal finance and growth: microeconometric evidence on Chinese firms. Journal of Development Economics, 96(1), 79–94.

    Article  Google Scholar 

  • Haltiwanger, J., Jarmin, R.S., & Miranda, J. (2013). Who creates jobs? small versus large versus young. The Review of Economics and Statistics, 95(2), 347–361.

    Article  Google Scholar 

  • Henrekson, M., & Johansson, D. (2010). Gazelles as job creators: a survey and interpretation of the evidence. Small Business Economics, 35(2), 227–244.

    Article  Google Scholar 

  • Hobday, M., & Perini, F.A.d.B. (2009). Latecomer entrepreneurship: a policy perspective. In Cimoli, M., Dosi, G., & Stiglitz, J.E. (Eds.) Industrial Policy and Development: the political economy of capabilities accumulation. Oxford: Oxford University Press.

  • Hölzl, W. (2009). Is the R&D behaviour of fast-growing smes different? Evidence from CIS III data for 16 countries. Small Business Economics, 33(1), 59–75.

    Article  Google Scholar 

  • Hölzl, W. (2014). Persistence, survival, and growth: a closer look at 20 years of fast-growing firms in Austria. Industrial and corporate change, 23(1), 199–231.

    Article  Google Scholar 

  • Hopenhayn, H.A. (1992). Entry, exit, and firm dynamics in long run equilibrium. Econometrica, 60 (5), 1127–50.

    Article  Google Scholar 

  • Hu, A.G.Z., Jefferson, G.H., & Qian, J. (2005). R&D And technology transfer: firm-level evidence from Chinese industry. The Review of Economics and Statistics, 87(4), 780–786.

    Article  Google Scholar 

  • Huang, Y. (2010). Entrepreneurship in China. The World Financial Review.

  • Huergo, E., & Jaumandreu, J. (2004). Firms’ age, process innovation and productivity growth. International Journal of Industrial Organization, 22(4), 541–559.

    Article  Google Scholar 

  • Jovanovic, B. (1982). Selection and the evolution of industry. Econometrica, 50(3), 649–70.

    Article  Google Scholar 

  • Krasniqi, B.A., & Desai, S. (2016). Institutional drivers of high-growth firms: country-level evidence from 26 transition economies. Small Business Economics, 47(4), 1075–1094.

    Article  Google Scholar 

  • Lawless, M. (2014). Age or size? Contributions to job creation. Small Business Economics, 42(4), 815–830.

    Article  Google Scholar 

  • Li, H. (2013). History and development of entrepreneurship in China. In Zhang, T., & Stough, R.R. (Eds.) Entrepreneurship and Economic Growth in China, World Scientific (pp. 13–33).

  • Li, J., & Matlay, H. (2006). Chinese entrepreneurship and small business development: an overview and research agenda. Journal of Small Business and Enterprise Development, 13(2), 248–262.

    Article  Google Scholar 

  • Lopez-Garcia, P., & Puente, S. (2012). What makes a high-growth firm? A dynamic probit analysis using Spanish firm-level data. Small Business Economics, 39(4), 1029–1041.

    Article  Google Scholar 

  • Luttmer, E.G.J. (2007). Selection, growth and the size distribution of firms. The Quarterly Journal of Economics, 122(3), 1103–1144.

    Article  Google Scholar 

  • Metcalfe, S.J. (1998). Evolutionary economics and creative destruction London. UK: Routledge.

    Book  Google Scholar 

  • Nelson, R.R., & Winter, S.G. (1982). An evolutionary theory of economic change. Harvard: Harvard University Press.

    Google Scholar 

  • Oliveira, B., & Fortunato, A. (2006). Firm growth and liquidity constraints: a dynamic analysis. Small Business Economics, 27(2), 139–156.

    Article  Google Scholar 

  • Pisano, G.P. (2015). A normative theory of dynamic capabilities: connecting strategy, know-how, and competition. Harvard Business School Technology & Operations Mgt Unit Working Paper (16-036).

  • Robson, P.J., & Bennett, R.J. (2000). SME Growth: the relationship with business advice and external collaboration. Small Business Economics, 15(3), 193–208.

    Article  Google Scholar 

  • Santi, C., & Santoleri, P. (2017). Exploring the link between innovation and growth in Chilean firms. Small Business Economics, 49(2), 445–467.

    Article  Google Scholar 

  • Schreyer, P. (2000). High-growth firms and employment. Science, Technology and Industry Working Paper series: 2000/03, OECD Publishing.

  • Segarra, A., & Teruel, M. (2014). High-growth firms and innovation: an empirical analysis for Spanish firms. Small Business Economics, 43(4), 805–821.

    Article  Google Scholar 

  • Stam, E., & Wennberg, K. (2009). The roles of R&D in new firm growth. Small Business Economics, 33(1), 77–89.

    Article  Google Scholar 

  • Teece, D., & Pisano, G. (1994). The dynamic capabilities of firms: an introduction. Industrial and corporate change, 3(3), 537–556.

    Article  Google Scholar 

  • Teece, D.J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

    Article  Google Scholar 

  • Winter, S.G. (1984). Schumpeterian competition under alternative technological regimes. Journal of Economic Behavior and Organization, 5(3–4), 287–320.

    Article  Google Scholar 

  • Yang, J.Y., & Li, J. (2008). The development of entrepreneurship in China. Asia Pacific Journal of Management, 25(2), 335–359.

    Article  Google Scholar 

  • Yu, X., Dosi, G., Lei, J., & Nuvolari, A. (2015). Institutional change and productivity growth in China’s manufacturing: the microeconomics of knowledge accumulation and “creative restructuring”. Industrial and Corporate Change, 24(3), 565–602.

    Article  Google Scholar 

  • Yu, X., Dosi, G., Grazzi, M., & Lei, J. (2017). Inside the virtuous circle between productivity, profitability, investment and corporate growth: an anatomy of Chinese industrialization. Research Policy, 46(5), 1020–1038.

    Article  Google Scholar 

  • Zhang, M., & Mohnen, P. (2013). Innovation and survival of new firms in Chinese manufacturing, 2000–2006 MERIT Working Papers 057. Maastricht: UNU-MERIT.

    Google Scholar 

Download references

Acknowledgments

We thank Giovanni Dosi and Jiasu Lei for helping with the study and giving insightful suggestions. We thank participants to the 10th EMAEE Conference, Strasbourg, May–June 2017, and to the International Workshop & Small Business Economics Special Issue on Entrepreneurship in China, Beijing, October 2016. We thank Zoltan Acs, Haifeng Qian, Jiangyong Lu, Canfei He, and three anonymous referees for their insightful suggestions. We gratefully acknowledge the support by the European Union Horizon 2020 Research and Innovation program under grant agreement No. 649186 - ISIGrowth. Daniele Moschella received financial support by the Italian Ministry of Education, University, and Research under the SIR Programme (project code RBSI14JAFW).

Author information

Authors and Affiliations

  1. Institute of Economics, Scuola Superiore Sant’Anna, Piazza Martiri della Libertà 33, 56127, Pisa, Italy

    Daniele Moschella, Federico Tamagni & Xiaodan Yu

  2. IBIMET-CNR, via Giovanni Caproni 8, 50145, Florence, Italy

    Xiaodan Yu

  3. Nottingham University Business School China, University of Nottingham Ningbo China, 199 Taikang East Road, Ningbo, 315100, China

    Xiaodan Yu

Authors
  1. Daniele Moschella
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Federico Tamagni
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Xiaodan Yu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Xiaodan Yu.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Moschella, D., Tamagni, F. & Yu, X. Persistent high-growth firms in China’s manufacturing. Small Bus Econ 52, 573–594 (2019). https://doi.org/10.1007/s11187-017-9973-4

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-017-9973-4

Keywords

JEL Classification

Search

Navigation